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Yield Inch Higher, Markets Skittish As Debt Default Nears

US TSYS
Treasury futures holding mildly weaker levels after the close, lower half of a modest session range after a couple brief rounds of volatility. Cautious trade with no economic data to react to Monday, participants are eager for a breakthrough in US debt ceiling negotiations (talks resume tonight around 1730ET).
  • Aside the potential default risk, markets are eager for the release of May FOMC minutes this Wed at 1400ET. Early Fed speak proved balanced to mildly hawkish.
  • SOFR futures are trading weaker in the very short end after MN Fed President Kashkari commented on CNBC that the June rate decision is a “close call” for him, broadly reiterating his comments to WSJ published Sunday. While Kashkari told WSJ he is "open to the idea that we can move a little bit more slowly from here", the focus is on "I would object to any kind of declaration that we're done."
  • Federal Reserve Bank of Atlanta President Raphael Bostic said Monday he's comfortable waiting to see how the economy is reacting to past interest rates increases before entertaining any further hikes.
  • Early knee-jerk risk-off moves, rates gapped back to pre-open levels at midmorning, stocks ticked lower following social media posts that a "large explosion" near the Pentagon complex had occurred. Markets snapped back just as quickly as the rumors proved false.
  • Decent volumes (TYM3 1.6m) driven by a pick-up in Jun/Sep Treasury futures rolling ahead first notice date of May 31.

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